Dodd-Frank Impact Produces Divergent Views at House Hearing
WASHINGTON — Two credit union witnesses voiced disagreements over the impact the Dodd-Frank Act has had on their credit unions when they testified July 19 before the House Financial Services Subcommittee on Oversight and Investigations.
Lynette Smith, CEO of the $87 million Washington Gas Light Federal Credit Union of Springfield, Va., and Deyanira Del Rio, board chair of the $33 million Lower East Side People’s Federal Credit Union of New York City and vice chair of the National Federation of Community Development Credit Unions testified at the last Thursday’s hearing that is part of a series of congressional hearings reviewing the effect Dodd-Frank has had on markets and consumers.
The hearing was packed with witnesses friendly to conservatives, who oppose the CFPB and the Dodd-Frank legislation. As such, all witnesses, except Del Rio, described how the bill’s increased regulations have caused burdens for their organizations.
Del Rio, who was the Democrat-invited witness, told the committee that Lower East Side People’s FCU has not been harmed in any way by Dodd-Frank. In fact, the credit union is seeing an influx of members from unfriendly banks, and lending and profits have increased.
Smith told a different story, saying the overall compliance burden is overwhelming for Washington Gas Light FCU. It’s hard for an $87 million credit union to keep with all compliance requirements, she said.
“We’re going to have to hire a full-time compliance officer,” she told Rep. Jim Renacci (R-Ohio), who asked about her credit union’s burden. Renacci asked Smith if she fears increased compliance costs will force her to increase fees to members.
“Yes, it could, down the road,” Smith said. “Credit unions have always been a lender of last resort. When I have members come to my office and I know they have no other place to go, I can provide them a loan in an hour, and I want to continue to do that .The next day, they’re bringing me cucumbers from their garden. That’s grassroots, that’s what credit unions do.”
Renacci then challenged Del Rio’s testimony about Dodd-Frank, saying, “You act like you have no concerns.”
Del Rio replied that her credit union complies with a wide array of consumer protections, and Dodd-Frank won’t add a significant burden. Additionally, Lower East Side People’s FCU does not anticipate having to raise fees to cover the costs of compliance for new regulations.
“The majority of those pages don’t apply to us,” she said. “There will be some disclosures and reporting, but that’s much different than having to revamp your whole business model.”
Smith countered Del Rio’s statement by saying, “A $34 million credit union may not have all the same services as an $87 million credit union. We’re trying to compete with the big banks.”
Del Rio attempted to respond, but Renacci said he was out of time. Later, when asked a question by Rep. Gary Miller (R-Calif.), Del Rio shot back. “We prioritize where and how to offset costs, and because we never became dependent upon high fees, we are not now scrambling to find how to make it up,” she said.
Furthermore, Del Rio said, her credit union has been challenged by regulators and consultants to charge members more fees, but Lower People’s East Side prefers to earn revenue from loan interest income instead.
“We want to make our income in a way that is responsible and generates activity in our community,” she said.
Rep. Michael E. Capuano (D-Mass.), responding to Smith’s testimony, said the hearing was the first he had heard about the burdens CFPB’s proposed remittance disclosure rule would have on financial institutions.
“I’m under the impression that this aspect has not been finalized, and I intend to look into it,” he said.
NAFCU quantified the effect some regs currently have on credit unions with a member survey on the subject. The results were published in the July issue of its “Compliance Monitor.” Research revealed that credit unions currently spend an average of 207 hours per year complying with the CARD Act of 2009 and nearly 60 staff hours each month meeting current mortgage disclosure requirements.
Carrie Hunt, NAFCU general counsel and vice president for regulatory affairs, said a conservative estimate of how new and coming Dodd-Frank regulations would increase the compliance burden would be a quadrupling of staff hours. The new TILA/RESPA combined disclosure rule only, which was recently proposed by CFPB, will require as much time to comply as the Credit CARD Act currently does, she said.
NAFCU President/CEO Fred Becker said his trade organization tends to represent the larger credit unions in the industry.
“Just imagine the impact on smaller credit unions,” he said, referring to the compliance staff hours currently required of comparably larger credit unions that responded to the survey.
Dodd-Frank has also affected the trade organizations themselves. NAFCU hired an additional compliance attorney in late 2011 to answer a higher volume of compliance questions from members. And, the act has created a “very fast and furious” pace at the trade group, according to Hunt, as NAFCU submits comments to Congress and the CFPB regarding new and proposed regulations.
CUNA General Counsel Mary Dunn used just one word to describe the effect Dodd-Frank has had on her organization: chaos. Not only has CUNA had to weigh in on the flow of new regulations from CFPB, the trade has had to develop relationships with contacts in a new regulating agency and educate them about credit unions.
“Dodd-Frank created a whole new regulatory world that is like Alice in Wonderland,” she said. “It’s like we’ve stepped into this rabbit hole that Dodd-Frank created.”
Dunn estimated CUNA staffers and management work an average of 30% more each week to keep up with Dodd-Frank regs, with longer hours during the week and time put in on weekends. However, Dunn said CUNA has not polled its membership to quantify the Dodd-Frank effect, saying such an effort would only add to the existing burden.
In addition to new regs from CFPB, Hunt said “when it comes to regulation, it’s ‘monkey see, monkey do,’ and we have some one-upmanship going on.”
However, Hunt said she was grateful the NCUA has only finalized half of the proposed rules expected this year.
The NCUA has also been affected by Dodd-Frank but not to the extent the credit unions it regulates has been impacted. The regulator has made some required organizational changes, such as creating the Office of Minority and Women Inclusion and reporting about its diversity to Congress, said Todd Harper, director of public and congressional affairs.
The NCUA also has had to make some required rulemaking changes and coordinate regulation with the CFPB, he said.